Is Franchising The Right Way For You?
Throughout the world, hundreds of businesses enjoy great success and profitability having chosen franchising as the best way to grow. Franchising, when structured correctly, is one of the least risky ways of expanding compared to most other methods to help businesses grow.
So why is this? Below is a list of benefits to a franchised business that cannot be enjoyed by non-franchised businesses.
So, what are these benefits?
Use Other People's Money
When a business wants to expand by opening a new location they may be limited in how quickly they can grow as they have to provide all the additional financial resources themselves. However, when a franchised business opens a new franchised outlet, it’s the franchisee themself who provides all the investment capital required. This allows the franchise to expand more rapidly than if the owner of the core business had to provide all the investment capital for growth themselves.
Use Other People's Money
When a business wants to expand by opening a new location they may be limited in how quickly they can grow as they have to provide all the additional financial resources themselves. However, when a franchised business opens a new franchised outlet, it is the franchisees themselves who provide all the investment capital required. This allows the franchise to expand more rapidly than if the owner of the core business had to provide all the investment capital for growth themselves.
Fewer Responsibilities and Commitments
In your existing business you or one of your team will probably be responsible for recruiting, managing, training and motivating your staff. You will, moreover, be responsible for any local, state or federal regulatory/legal requirements where you choose to expand. In a franchised location, your franchisee takes on all these responsibilities as they’ll be the business owner. You will, however, take on some additional responsibilities in terms of recruiting and training new franchisees and providing continuous monitoring and support as they grow their own business in your network.
Greater commitment to business growth than typical from employed staff
Company-owned location managers will rarely have as big a commitment to building a business as the business owner themselves would have and, in the majority of cases, the franchisee will, themselves, be heavily involved in the day-to-day running of the business. After all, they’ve made a financial investment in their own business and its success will stand or fall by their own efforts. As a business owner yourself, you’ll know how much effort is needed to run a successful business especially during its start-up period.
Quicker and Less-Risky Growth
You can achieve a higher rate of growth through franchising than through normal organic growth largely because of the benefits already outlined above. This may, perhaps, allow you to open additional locations more rapidly than your competitors thus establishing you as the market leader in your sector. This can be particularly true if you operate in an innovative sector where there are few existing players. However, even in well-established sectors, developing a new nation-wide brand can, typically, be more easily achieved through franchising than by organic growth.
Increased Value of Your Business
Most franchisees choose to operate their franchise in the locality in which they are currently living, so you can gain competitive advantages by tapping into the local knowledge of your franchisees. They may have applied for the franchise simply because they have seen a gap in the market where they live.
Group Buying Strength
De-Risking Your Business
This is interesting and something funds and private equity, particularly funds in the USA that are buying franchise networks, have cottoned on to. If you wholly own a multi-site business and due to external factors such as a downturn in the economy, revenues fall, some of those locations may lose money and even threaten the survival of your business.
On the other hand, if the same network is franchised, you’re cushioned from the effects of a down-turn. Which, by the way, is why so few franchise systems fail during recessions in comparison to wholly company-owned networks.
Helping Others Achieve Their Dream
At one time or another, you had a dream of starting your own business. Many people out there often think about it, and investing in a franchise opportunity, like yours could be, gives them the chance to realize this dream without the risks of starting an independent business.